China's CPI rose 1.2% in May, modestly lower than the 1.5% rise in April. The core CPI number of 1.6% YoY is running a bit higher than the headline number, primarily on the fall in oil prices. May's other economic data has so far shown that growth is still very weak, and a bottom has potentially not been reached. The CPI data adds to the worry that economic activity remains subdued.
But, as I have mentioned before, PBOC easing measures will probably not translate into a growth rebound until sometime in the Summer. If we don't see any change in activity in the next few months, then we should start to worry. But for now, it will take time before easing leads to activity.
China's target inflation is around 3% for 2015. With nearly half of the year over with, this target is either totally unrealistic or Beijing is confident that its stimulus measures will be successful in increasing activity in the real economy.
I don't think that we should view the low inflation numbers as a sign that more PBOC stimulus is imminent. Easing measures this year have already potentially unleashed trillions of RMB into the system and brought down interest rates considerably. So, the PBOC may wait until measures already introduced have time to spread to the real economy before easing any further. Or, the PBOC may resort to newer tools for stimulating growth without stoking excesses (like we have potentially seen in the stock market rally), like the PSL (see my PBOC infographic for details).